Loyalty to an airline? What's the point?

Dec. 17, 2012, 12:45 p.m.

It’s a bit like travel bookers talking to each other instead of their customers, but a survey of exhibitors and “business partners” at one of Europe’s biggest travel trade shows this month indicates just how big is the hole that the air travel business has dug itself into.

Loyalty to an airline? What's the point?

Airlines have spent the last ten years subtracting value, instead of adding it.

It’s a bit like travel bookers talking to each other instead of their customers, but a survey of exhibitors and “business partners” at one of Europe’s biggest travel trade shows this month indicates just how big is the hole that the air travel business has dug itself into.

The survey at the ITB Berlin travel show also offers an insight into the plight of national flag carriers like Qantas, created by government but now trying to survive in a dog-eat-dog corporate jungle.

Among its many findings, only nine per cent of respondents said they preferred to book flights with their national airline and only four cent were willing to forfeit value for money to do so.

In other words, “loyalty” these days barely qualifies for its definition. Value is king and, if the price isn’t right, the customer moves on.

“Customers reward airlines that offer transparent services and good value for money because they feel they are being treated well,” one of the participants, Martin Buck, director of the Competence Centre Travel & Logistics at Messe Berlin, commented.

“If a national carrier is unable to fulfil those demands then it loses its emotional bond with the customer.”

That qualification doesn’t just apply to national carriers: it’s harder than ever for all airlines these days to command customer loyalty.

They shouldn’t be surprised when they have set out to alienate their customers on the value-for-money front in the past decade.

The first big change in the value landscape, triggered by the travel recession that followed the US terrorist attacks in 2001, was a massive devaluation in frequent flyer benefits.

Suddenly “free” flights weren’t free anymore. “Taxes” (which mostly aren’t government taxes at all) and charges were required to be paid for the first time on flight redemptions, meaning a member of an airline loyalty program wanting to travel from Australia to the US or Europe could be required to pay $500 or more to access their “benefit”.

It was always going to come to that because frequent flyer programs are schemes built on unsustainable “contingent liabilities” that airlines amass in a desperate attempt to attract repeat business.

Unfortunately, the changed airline economy since 2001 has also meant that airlines have increase their average passenger loadings per flight from about 70 per cent to around 80 per cent.

Sophisticated yield management IT programs have enabled much more precise revenue control, but the window into which frequent flyer seat redemptions are supposed to fit has become a tiny fraction of the available seat inventory.

The shock of 2001 was only a shock or two away from the global financial crisis of 2007-09, which has spurned a second value downgrade for air travellers: the “ancillary revenue” craze, in which the fare is no longer the actual fare you’ll pay, but just a component of it.

On top of the “fare” you must now add charges for baggage, use of credit card, seat selection, priority boarding and a host of other optional extras.

Thankfully for consumers, most jurisdictions have begun to catch up with the lying epidemic that has accompanied the ancillary revenue craze: in Europe and the US airlines are now obliged to unequivocally state the all-up cost of an air ticket instead of hiding all or parts of it behind asterisks in the small print.

As the airline business contemplates another Christmas-New Year season of juicy 100 per cent load factors in industry-speak, it may like to contemplate where the tunnel it is digging will eventually lead.

Is the objective to get the unit operating cost per available seat kilometre to as near as possible to zero? After two decades of a continuous campaign of cost reduction, at what point in a mature air travel market like Australia’s do airline managers start thinking about radical concepts like value adding, instead of value subtraction which has been their preoccupation for a decade?